Swedish payment processor Klarna handles 250,000 transactions per day worldwide, and offers a lending mechanism similar to PayPal Credit.

With an eye on upping its mobile conversion rate, Overstock.com Inc. announced today it is working with a European online payment processor, becoming the first U.S. e-retailer client for Klarna of Sweden.

Overstock CEO Patrick Byrne says Klarna Checkout improved mobile conversion rates in tests more effectively than another payment service that he declines to name.  

“We like the ease of use in that it’s combining a streamlined user experience with various credit offerings, the payment process and fraud processing,” Byrne says. “This integrates those all into one experience.” Overstock is No. 31 in the Internet Retailer 2015 Top 500 Guide.

While just getting started in the United States, Klarna has a significant base in Europe.

50,000 merchants worldwide offer Klarna as an online payment option, helping to complete 250,000 transactions per day. The company says it currently holds 10% of the e-commerce payment market in Northern Europe.


“We believe that that friction is a problem that we solve,” says Brian Billingsley, CEO of Klarna North America. “Klarna takes all the risk on all the payments, both the fraud and the credit risk, as soon as the consumer hits ‘buy’ so as a retailer, you can focus on what retailer should be focused on.”

Here’s how Klarna works: When it comes time for a consumer to check out, she enters an e-mail address and a delivery address. Klarna uses 200 variables to assess the risk of the transaction. Once it goes through, the shopper has two weeks to complete the purchase, either paying with a credit card or by connecting to a bank account. If the consumer does not pay, she is required to make a minimum payment per month—according to a Klarna website in Europe that amount is at least 1/24 of the amount owed, or a minimum of 6.95 euros ($7.79). Klarna charges 11.95% interest on the unpaid balance, which, if the consumer pays off the purchase amount in 12 installments amounts to an effective annual interest rate of 14.79%, according to the Klarna website. Billingsley says Klarna will be rolling out a version of the credit program in the U.S. early next year, offering what he says is “one fixed APR that will be competitive.” 

On the terms and conditions section of its U.S. site, Klarna says a customer has 14 days from the day the merchant ships his order to pay for his purchases without incurring interest or additional fees. If he does not pay within 10 days after the first due date, a fee of up to $5 fee is added. If the shopper does not pay within 28 days from the shipping date, Klarna will find him in default and may refer the matter to a collection agency. 

Overstock pay 2.9% of each transaction plus an additional 30 cents, the same standard rate for PayPal, with which Klarna competes. Like Klarna, PayPal offers consumers the option to pay later, called PayPal Credit, formerly Bill Me Later.


“Nobody’s done anything like this in the U.S.,” Byrne says. “You go to checkout and with this system, if you say pay with Klarna, you’re putting in your email and Klarna’s checking you out on the back end and it comes back in half a second and tells us go ahead and accept this. We accept the order, we ship and everything.” One difference between PayPal and Klarna is that a consumer has to have a PayPal account to check out with PayPal; that’s not required with Klarna.

Byrne says Overstock partnering with Klarna isn’t an indictment on the company’s current payment providers, which include PayPal, rather another innovation for the online retailer that was among the first major U.S. web merchants to accept the cryptocurrency Bitcoin.

“We were one of the first major retailers on PayPal,” he says. “To me, this stands in that line. PayPal, Bitcoin, now Klarna. We’re always looking for ways to help our customers so this fit perfectly.”

Read more about PayPal: eBay logs its final quarter tied to PayPal


Klarna’s Billingsley says the company has signed up between 15-20 new retailers of varying sizes, and the company  expects to name them in the coming weeks. “When you go through our checkout, we don’t hit you over the head with the Klarna branding,” Billingsley says. “Consumers start to interact with Klarna and it’s not like they have to proactively sign up. They get that convenience of paying after delivery.”